The Top 7 Gateway Markets for CRE Investment

By Published On: February 15, 20226.4 min read

Cities across the US are currently seeing a real estate boom, and many investors are wondering what cities are best to invest in. You may have heard the terms “gateway market,” “secondary market” or even “tertiary market” when it comes to commercial real estate investment. While secondary markets are becoming ever more popular, many investors prefer to stick to the always-growing gateway markets.

What Is a Gateway Market?

A gateway market is a city that real estate investors consider top tier in terms of economic health, population, economic diversity, desirability and density. For the most part, gateway markets are international cities that also serve as an entry point into a country, either by air or sea, and are often some of the largest cities in that country.

“From a real estate standpoint, gateway markets usually tend to be less affected by cycles,” added Grigoriy Azayev, Executive Managing Director at Stelth Commercial Real Estate Group. “Real estate values usually hold a little bit better, solely because they’re more metropolis-centered markets, rather than suburban or cyclical markets.”

Because of these characteristics, gateway markets are considered valuable and appealing for both commercial and residential real estate investors, and as a result, demand for real estate in these markets continually increases.

The Top Gateway Markets in the US

In the United States, there are a handful of gateway markets, including some newer ones, which are seeing growth in population, density and pricing, and are considered major hubs of entry into the country.

  • New York City – New York City is considered the top gateway market in the US. With a population of 20 million people, NYC is the most densely populated large city in the Americas, with job growth up by 12% in 2019 and accelerated economic growth in 2020..
  • Los Angeles – LA has a population of over 13 million, and its economy is one of the fastest-growing in the US. In the past six years, LA’s unemployment rate has gone from 10.2% to 4.5%, with 200,000 new jobs created. LA also has a large tourism industry, setting new records for tourism and travel.
  • Washington DC – DC has a strong job market, culturally diverse communities, and low unemployment, and it is the nation’s capital, with two major gateway airports. In 2019, the median household income in DC was $92,266, and between 2018 and 2019, that median income grew by 8.29%.
  • Miami – Miami wasn’t always a gateway market, but in recent years, it’s become one of the fastest-growing US cities. From 2018 to 2019, the median household income in Miami grew by 2.75%.
  • Chicago – Chicago is the third most populous city in the US, and its airport is the second busiest in the country. Chicago boasts one of the world’s largest and most diversified economies, with an annual gross regional product (GRP) of over $698 billion. It’s also the number one metro for corporate relocations and expansions.
  • San Francisco – SF has one of the most expensive housing markets in the country and it is among the top five densest municipalities in the US. It also has the sixth largest economy in the US, with a GDP of $501 billion and a median household income of $96,205.
  • Boston – With a diverse and strong economy, Boston has become a technology startup site with one of the main ports on the East Coast. In the past year, Boston’s job market has gone up by 4.3%

Pros of Investing in Gateway Markets

As a whole, gateway markets will always be in demand, so there are a number of advantages to investing in commercial property in those areas.

High Occupancy and Density

In gateway markets, commercial real estate occupancy rates are usually higher, said Azayev. Because gateway markets like New York City always retain high levels of desirability for people, and are dense in population, commercial property owners will likely never have trouble finding tenants.

High Growth in the Long Term

Long term, your investment in a gateway market will likely pan out better than those in secondary markets, said Azayev. Using New York as an example again, anyone who invested in property 15 years ago has seen a very high rate of return since that time.

Economic Health

One characteristic of gateway markets is strong economic health. Gateway markets are generally less affected by economic downturns.

“During a downturn or slowdown, secondary markets usually suffer substantially more than gateway markets,” said Azayev. “We saw it in 2008, even when real estate values across the country dropped by 30 to 40%, in New York City, for example, they were only down 5 to 10%.”

High Liquidity

Real estate in gateway markets comes with a higher degree of liquidity than other markets. It will always be easy to sell or liquidate your property due to the consistent, high demand for real estate.

Cons of Investing in Gateway Markets

Although there are a number of advantages to investing in gateway markets, there are also a few disadvantages to consider.

Competition and High Costs

Real estate investment in gateway markets is far more competitive than in other markets. This means it will be more difficult for new investors to break into a gateway market, and real estate costs will naturally be much higher.

Lower Yields

Because of the competitiveness of gateway markets, lower yields are also a possibility. Real estate costs are higher, and month-to-month, “your yield might not be as strong,” said Azayev.

More Government Regulation

In gateway markets, there’s a higher degree of local government regulation when it comes to commercial real estate, simply because gateway markets tend to be large cities with dense populations. In New York City, for instance, you’ll come across more zoning regulations than a smaller city like Boise, Idaho.

High Construction and Maintenance Costs

In addition to the properties themselves being more costly in gateway markets, the construction and maintenance costs are also higher.

Less Affected by Market Upturns

Just as gateway markets are less affected by market downturns, they are also less affected by upturns in the market.

“If you’re investing in a secondary market, and it really is on the uptick, then your upside will be a lot stronger than it would be in a gateway market,” added Azayev.

Strategies for Gateway Market Investment

Azayev’s biggest piece of advice for investing in gateway markets is to network. As a new investor, it’s difficult to get your foot in the door of a gateway market without knowing or talking to the right people.

“It’s very competitive,” said Azayev. “It’s a contact sport. It’s all about relationships. So you have to generate as many relationships as you can with lenders, brokers, attorneys, anyone that could start bringing you some deals.”

To develop those relationships, Azayev suggests making connections on LinkedIn and from there, hopping on the phone to make calls to the top brokers and brokerages in your gateway city. He suggests asking questions about properties they have in their inventory and finding out what you can take a look at. From there, you can begin to build a relationship.

“Brokers usually don’t mind having a brief conversation, seeing what you’re looking for, and then they start sending you things,” said Azayev.

With High Competition, Make Sure to Network

Once you’ve looked at the pros and cons of investing in a gateway market and decided that gateway markets are for you, then it’s time to network as much as possible. Gateway markets mean a lot of competition, and to get your foot in the door, you need to know brokers and other investors, so be sure to do your research and make those phone calls to ensure your investment success.

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